Any currency war could put India in a tough spot

Wed Jan 30, 2013 1:48pm IST

Photos of yuan (top) and U.S. dollar banknotes are displayed at a money exchange in Hong Kong September 13, 2010. REUTERS/Bobby Yip/Files

Photos of yuan (top) and U.S. dollar banknotes are displayed at a money exchange in Hong Kong September 13, 2010.

Credit: Reuters/Bobby Yip/Files

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Reuters Market Eye - Finance Minister P. Chidambaram says premature to say Japan's move to weaken yen constitutes a currency war, but urged Asian countries who are looking to stem volatile inflows to avoid depreciations of their currencies.

Chidambaram's comments must be seen in the context that India needs large inflows and a stronger rupee to narrow the current account deficit and to curb inflation.

Despite QE3-led strong inflows into domestic stocks, the rupee actually saw mild depreciation in 2012, with the central bank intervening to prop up the currency.

A currency war could put India in a tough spot, not following other countries in depreciating its currency could make its exports less competitive.

But the country also can't afford a weaker currency at a time when confidence in the rupee is not particularly strong because of the twin deficits.

(Reporting by Subhadip Sircar)

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